ACCT 200: Exam 2
56 Cards in this Set
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mark-up
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purchase already manufactured products and resell them at higher price
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merchandisers
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make no product of their own.
they earn $ by putting all the products in convenient places
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merchandisers' operating cycle
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the cycle of purchasing products, transporting it to the resale, selling it to the customer and collecting payments
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invoice
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the suppliers bill asking the merchandiser to pay the agreed-upon amount
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historical cost concept
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used to maintain the cost of each item in inventory
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matching concept
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match the expense to the merchandiser for an item sold w/ the revenue from the sale
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contra account
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has the same normal balance as its companion
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purchase allowances
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are price reductions, after the fact, granted by the supplier to make amends for some error on its part
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purchase discounts
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given to merchandisers who pay their bills on time
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wholesaler
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a company that sells to other companies like merchandisers- not directly to individuals
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2/10 n45
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means 2% discount if the amount is paid in 10 days buy is due in 45 w/ no discount
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2/10 EOM
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2% if paid in 10 days but any unpaid is due at the end of the month following discounting period
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(discounts) net method
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assume that discounts are always taken
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(discounts) gross method
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assumes that the discounts are never taken
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purchase discounts
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this account will store reductions in the cost of purchases due to discounts
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net purchases
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the gross purchases made throughout the period, plus freight-in, less purchase discounts and purchase returns and allowances
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purchase account
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close companion accounts to this account
close this account to inventory
resulting balance = GAS
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sales returns and allowances
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contra account to sales revenue
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cost of goods sold
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expense associated w/ depletion of inventory
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gross margin
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sales revenue- cost of goods sold
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gross margin percentage
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gross margin/ net sales revenue * 100
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single step format
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income statement w/ revenues followed by expenses
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net purchases
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gross purchases + freight in - discounts - returns & allowances
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net sales
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gross sales - discounts - returns & allowances
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internal controls
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those actions and policies which a company uses to safeguard assets, maintain accounting records, encourage proficiency, and adhere to company policy
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accounting internal controls
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actions and policy to safeguard assets & maintain accounting records
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cash
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money and coins as well as checks and money orders
NOT CASH> stamps & IOUs
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cash over and short
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unintentional errors go into this account
over- debit
under- credit
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imprest systems
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systems which are controlled by having a clearly defined maximum level
-only debited when the account is originally opened
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accounts receivable
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result from purchases of goods or services on account and are paid-off in a relatively short time
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current asset
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any receivable that is supposed to be paid in one year
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direct write-off method
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easiest way to account for bad debt expense
debit BD expense
credit accounts rec.
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percentage of sales
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bad debit is estimated as a percentage of total credit sales that occurred during the accounting period
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aging of accounts receivable
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classifies each individual customer's receivable at the balance sheet date according to how long it's been since the customer made the original purchase
-provides an estimate of the ending balance in allowance for bad debt account
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factoring
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a large company w/ lots of receivables will get some needed cash by selling their receivables to a 3rd party
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promissory note
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the actual note that creates a note receivable
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maker
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the entity who owes the money
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payee
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the entity who is owed
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principle (principle amount)
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the original amount owed by the maker
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maturity value
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principal + interest
interest = principal * annual interest rate * time (years)
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discounting a note
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selling the note to a bank for cash
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turnover ratio
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measures the average that the income statement item passes through balance sheet item
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accounts receivable turnover ratio
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measures how successful the company is in collecting customer debt
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conservatism concept
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when two or more accounting alternatives appear to fulfill reporting objectives- then the method that provides least favorable impact is chosen
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impaired inventories
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are those that have lost value for some reason- obsolescence or spoilage
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lower-of-cost-market
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if the market value for inventory drops below balance sheet value- then that value on the BS must be written down to reflect true value
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cost-flow assumptions
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describe how the historical inventory costs flow to cost of goods sold at the time of sale
weighted-average cost
FIFO
LIFO
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consistency principle
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once chosen, the same accounting method should be applied in all periods
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disclosure principle
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a company should report enough information for a financial statement user to be able to make informed decisions about the firm
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tangible assets
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are long-lived assets which have physical form
ex. land, equip., building
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land improvements account
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includes any improvements that are not viewed as permanent enhancements such as: fencing, lighting, and paving
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building account
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includes costs associated w/ the building
such as design
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land account
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any permanent costs to land such as: sewer system, and landscaping
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residual value
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is the value of an asset at the end of its useful life
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depreciation
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(cost- residual value)/ useful life
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units of production (depreciation)
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(cost- residual value) / number of units
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ACCT 200: Chapter 6